So when Mortgage Strategy had banking deposit and loan software provider Phoebus Software managing director Paul Hunt and its sales and marketing director RIchard Pike to be interviewed, understandably this was one of the first questions we asked.

Phoebus was set up in 1989 but it was after 2004 that the company rapidly expanded in the boom years, providing the IT muscle for now long departed start-ups like edeus and lenders like Heritable Bank.

Despite the downturn and the obvious setback of watching clients like Heritable croak (it collapsed with its Icelandic parent group Landsbanki in 2008), the firm has continued to be linked to start-ups like Precise Mortgages and Masthaven, with a reputation for some of the most up-to-date systems in the market.

So perhaps it’s not surprising that Hunt’s immediate answer to the question of what he predicts the future of getting a mortgage to be is not on-screen technology or even greater use of the internet to transmit data but is instead virtual reality.

“The main problem with it is, how do you type?” says Hunt, twiddling his fingers in the air as he describes the brave new world of technology that could soon be helping us all communicate.

“You’ve got your screen on, you’ve got this thing wrapped round your face, so how do you see the keyboard?”

But despite the current pitfalls of virtual reality technology Hunt really does believe advisers, lenders and consumers will soon be communicating via a pair of virtual reality goggles.

“With virtual reality, I do really believe it is the future,” he says.

He argues they will no doubt get over problems like how to type while wearing the headset and points to social network giant Facebook’s recent purchase of virtual reality firm Oculus Rift for $2bn as a sign that the wider market will eventually embrace it. Virtual reality has been around for decades and its last stab at popular attention was the 1992 science fiction horror film Lawnmover Man.

But Hunt explains that incredibly there are now predictions that there will be a virtual reality head set on every desktop in a couple of years. “We’ve got some guys at work who love Oculus Rift and have a developer’s licence,” he says.

And however they do it, with the recent change over to the MMR there is now an increased focus on how lenders interact with clients.

“The biggest thing from an origination point of view for lenders right now is how they communicate with clients,” says

“Whether that’s face to face or via a video conference facility or even an instant messaging service, if a person is filling in an application they can talk to someone directly at the same time.”

The IT Crowd

Clearly Hunt is passionate about the possibilities of IT but then his background has been in IT, having done a computer science from the University of Manchester in the 1980s.

“Back then I was dealing with computer languages like Pascal and Cobol,” he says. “You didn’t have PCs on everyone’s desk, you had ZX Spectrums, BBC Micros and you had to learn how to build computers from scratch and learn how to programme them.”

He then moved to Nottingham for three years to train to become a chartered accountant. When he qualified in 1994, he moved to the British Overseas Territory in the Western Caribbean Sea of the Cayman Islands to work for PriceWaterhouse, with the initial aim that he would work there for two years.

But six months after arriving he joined a Canadian bank located in the Cayman Islands, where he stayed for the next six-and-a-half years. So, he had a good job on a sunny Caribbean island – the obvious question is why did he return to the clouds and drizzle of the UK? “My wife,” he says laughing. “We had some kids over there and she said they needed their family around them so we came back.”

He then joined a company called LaSer in the UK as head of finance in 2001 before joining Phoebus in 2004. When he joined, Phoebus was a small company of 14 employees, with a customer base of eight. The company had been going since 1989, with new clients up to that point generated by word of mouth.

“They were a company of engineers who built the system because they just enjoyed developing software,” he says. “The software was top notch because they were very good engineers. They just needed someone to grow the business and that was my job.”

Boy to man in banking

By contrast, Hampshire-born Pike has his background firmly rooted in banking, having first joined Royal Bank of Scotland straight out of sixthform college.”I joined the Basingstoke branch and we were raided on my first day,” he says.

“Actually I say raided, it was a bit of a strange set-up. It was 1987, you did all your cash and cheques in the counter but they didn’t have a big enough branch so, and I’m not joking, they had a sub- office down the road so they would take a trolley full of money and cheques down the road to process. My job was to push that trolley along and on my first day someone had obviously seen it happening.”

Despite becoming a victim of organised crime on his first day, he stayed with the bank until 1989 when he joined a company called Mortgage Systems Limited in Fleet, which subsequently turned into third-party outsourcing firm HML.

In 1992, he was asked if he wanted to relocate to Skipton as the company was closing its Fleet office down but he declined the offer and instead went to work for Cheltenham amp; Gloucester as an assistant branch manager. Over the next eight years he had a variety of roles ranging from BDM, mortgage centre manager, branch manager and then he centralised all arrears and collections out of branches into a call centre in Gloucester.

He then went to work for Marlborough Stirling, now known as Vertex, setting up its outsourcing operation, and then in he worked for regulatory and compliance solutions firm Huntswood between 2002 and 2003. “In 2003 I had a mid-life crisis and decided to go out alone and set up my own consultancy business,” he says. His company, Independent Business Consultant, touched on all parts of banking and Pike used his wide range of connections to capitalise on the buoyant market at that time and he worked with the likes of Kensington Mortgages, Santander and Edeus.

But the credit crunch hit and in 2008 he had to let his consultants work on a daily rate and continued doing that until he joined Phoebus in 2011.

The boom years

Four private individuals ultimately own Phoebus – three of them set up the firm originally and Hunt bought into the company when he joined back in 2004.

In the early years of Phoebus, its system was primarily a banking solution covering deposits, cost of lending, first and second charge lending, equity release and a little bit of debt finance.

From 2004 to 2007, post-Mortgage Day, the big push among mortgage software engineers was on origination platforms.

But anyone around in the market back then will remember that when the mortgage market shifted from self-regulation under the Mortgage Code Compliance Board to the ultimately flawed control of the Financial Services Authority, many lenders’ systems were found wanting. There was a six-month blip, where with some lenders intermediaries were unable to do business. Many intermediaries were left wondering what had gone wrong and why there were such delays.

Come Mortgage Day in 2004, Hunt says Phoebus’ clients like GE Money, Money Partners (which was initially set up by Kensington and sold to Goldman Sachs before being closed) and doomed Heritable did not have a problem because the Phoebus system was designed to be flexible, with lenders easily able to update or change the software as regulation or business practices changed.

But that was not the case with many of the established systems that had been around at the time.

“It was because there was no flexibility in those systems and the fact that at that time they had old archaic systems and their systems were not able to change,” he says.

In the boom years, Phoebus grew the company from 14 staff to 55 but the collapse of its then client Heritable Bank, which went down with the collapse of its parent group Landsbanki in 2008, led to a slump and other clients were also starting to pull back.

“That hurt us for about three months,” he says. “So we made some redundancies, brought the staff down to 40, got ourselves realigned and then we made a conscious decision not to cut our sales and marketing.

“It’s one of those classics, it’s really important to keep your name in the marketplace and actually you can get the biggest competitive advantage when other people are struggling.”

A lot of its competitors exited as a result of the downturn, with the market contracting from around 10 active software providers to three or four. Many he says have now turned into third party outsourcing firms.

Spotting the upturn

In the downturn, the focus shifted from originating new loans to collecting debt but Hunt says that started to change 24 months ago and they once again had firms contacting them about originations.

“A lot of people wanted to lend in a regulated market and to do that they needed a licence, funding in place and the third bit is they need a system in place,” he says.

“So we knew then that things were starting to pick up. In 2011 at some stage there were five applications in for a new bank and today there are 24 challenger banks trying to get a new licence. Compared with today, the market has improved massively.”

Phoebus’s system works on a modular basis so if a secured lender wants to into bridging or vice versa, it just plugs in another module

It offers modules for deposits, first and second mortgages, development finance, bridging, asset finance, unsecured finance.

“Anyone that is looking to come into the market today in the challenger bank environment, they are probably not going to do current accounts and first mortgages,” says Pike. “A lot of them are going to do deposit taking and high rate margin areas like development finance and commercial lending. But if they said in six months time they want to do unsecured, we’ve got a module they can use which still uses the same database at the bottom.”

And to that end he points to bridging lender Masthaven as an example of a client that expanded out into secured loans.

“We want to make sure that the product is recognised as a banking system and not just a mortgage origination platform or servicing platform, we can do other functionality that banks require,” says Pike.

As to whether it is becoming easier to set up lending brands, Hunt says the big question is whether they get a licence.

“We’ve been involved with a lot of firms and a lot have been turned down historically,” he says. “People have to be cleaner than clean with a strong proposal, otherwise they won’t get a licence.”

A very emotional subject

The other occupational hazard of being a software company focusing on the mortgage market is obviusly the constant change in regulations. Since the downturn properly struck in 2008 with the collapse of Lehman Brothers, a whole host of products such as self-cert mortgages and fast-track have gone.

And with the introduction of the MMR at the end of April there have been another set of rules to take on board covering affordability, disclosure and particularly data reporting for lenders.

“We have built the system in the way that we have so that it is adaptable, because there is always something coming around the corner,” says Hunt. “The hard part is not building the system, it’s interpreting the rules.”

A good example of this is affordability. Lenders’ affordability calculators now need to take into account three main elements – committed expenditure of applications like credit and contractual agreements, basic household essentials like heating, water, council tax and buildings insurance and finally basic quality of living costs which are hard to reduce like clothing, household and personal goods, basic recreation and childcare. Stress testing is another contentious issue and it’s easy to speak to a wide number of lenders and get contrasting views on exactly how lenders should proceed in the MMR world.

“Every lender has a different interpretation – affordability is a very emotional subject,” Hunt says diplomatically.

And returning to our first question about new technology that could change the face of mortgages, while virtual reality might be a long way off, his other prediction is that social media like Twitter, Facebook and Google+ will become more integrated. A number of intermediary firms have made the likes of Twitter a key part of their business and he expects this to grow. To that end, it already has social media plug-ins that its lending clients can insert into their systems to communicate with clients.

“In the short term it will be about using instant messaging, any form of social media in a business sense,” says Hunt. “There is still social media and business and the two are not that close together.

“So to use those social media tools that have been developed by these huge companies in the business world will be a huge step forward. It will allow you to talk about a mortgage with a guy in a farm house without going out there. You can take all the hassle out of it.” l

Over the past couple of months I have spent a considerable amount of time researching credit scores and factors that have the largest impact on them.

Thanks to websites like myfico.com and creditkarma.com, as well as multiple blogs on the subject, there is a lot of information out there.

First, it is important to understand how your score is calculated.

As you can see from the chart I found on myfico.com, the amount you owe and your payment history impact your score by 65%. Of the amount you owe, revolving credit (such as credit cards) can have a huge impact on your score. For example, if you carry high balances on your credit cards and the amount you owe is close to the credit available to you, it can have a negative impact.

You can improve your score very quickly by paying down the amount of credit card balances that you owe. While you might think that paying them completely off would have the biggest impact and make your score the highest, that may not always be the case.

There are multiple opinions out there that your credit score may actually be the highest if your balance to available credit ratio is in the 10% range. (Less than 15%) This may indicate that you are not living above your means and that you use your credit responsibly. Your credit score could vastly improve if you paid your balances down below 50% of your available credit, and even more so if you paid your credit card balances down below 33% of your available credit. Several of the “experts” agree that the 10% balance to available credit ratio might be the sweet spot in regards to revolving credit.

Why is this important? The better your credit, the better interest rate you will qualify for on a mortgage. For example, you could take a look at your credit now to see if there are ways you could improve your score to above 740 or 780, which might save you .125 or better on a mortgage interest rate, which would save you thousands of dollars in interest over time.

Many of these websites have what they call score simulators, where you can actually see what your score would be if you took certain actions such as paying down credit card balances as we discussed above. Check it out! -mr

Please feel free to send your questions. Rest assured I will only use your first name. Email them to: questions@mikerandallhomes.com

Executives at both FICO, creator of the dominant credit score used in the mortgage industry, and up-and-coming competitor VantageScore Solutions confirmed recently that mortgage lenders could reduce todays historically high score requirements without raising their risks of loss.